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The Higher Education Bubble Isn't as Big as They Say

When even the judicious George Will is chiming in on an important policy issue, you just know the concern must be serious and supported by all the right studies.

THE HIGHER EDUCATION BUBBLE, the thinking goes, is just like THE HOUSING BUBBLE. The prices of houses went up for a good while much more quickly than the rate of inflation, even as the quality of new houses became more shoddy.

One reason is that the government decided that everyone should be a homeowner. That’s the American way. So government made it way too easy for people to qualify for loans covering the whole price of the crazy expensive hunks of junk.

Then the bubble burst. The owner was stuck with a mortgage for much more than the house is suddenly worth. Can’t make the payments! Can’t sell the house for anywhere near the value of the mortgage! Banks get stuck. Lives get ruined. The economy swoons. We haven’t even begun to feel the full effects of the irresponsibility of government, banks, and consumers who should have known they were taking a too-good-to-be-true road to comfort and prosperity.

Savvy entrepreneurs like Peter Thiel saw and predicted the bursting of the housing bubble. Several years ago they started to do the same with the education bubble. Now Will is on board.

Is the education situation really the same as the housing situation? Well, college tuitions are going up much faster than the rate of inflation. And studies are apparently showing that the quality of the product is getting more shoddy. More students are choosing lightweight majors (often ending in studies) or techno-lite majors (often ending in technology or management or relations) where it’s hard to prove that they’re learning anything at all.

Students are studying less than ever. Grades are so inflated that the most common grade is now an A. And dorms are cesspools of self-indulgence. Residential students are complaining about being bored or unchallenged, which really means that their sense of entitlement has soared. It’s your job, the thought is, to be entertaining and interesting to me. I’m paying you to have a four-year vacation from challenging myself.

The HBO series Girls reminds us that graduates who major in film studies from elite Ohio schools such as Oberlin sometimes leave college with none of the habits or opinions traditionally connected with moral and intellectual virtue. They can’t hold jobs! They continue to live off their parents! They’re full of vanity and lacking genuine self-respect! They can’t even pair-bond as a prelude to reproduction! Even their safe sex is not so safe—not to mention somewhat random and otherwise degrading. Yet they’re sometimes saddled with enormous student loans. For what?

Why is college so expensive? Well, some blame the self-indulgence of overpaid and underworked tenured faculty. (No study could show, however, that pay for faculty at most colleges has risen anywhere near as fast as tuitions. Overall, average faculty salary increases pretty much mirror the rate of inflation.)

Others blame the bloated self-indulgence of college and university administration. There are studies that show that faculty have a lot less control over what colleges actually do. The priorities of the newly empowered and more highly compensated administrators are veering away from actual education. More and more college administrators are ambitious careerists in their thirties who jumped the shark teaching as soon as they could. The number of academic administrators has, in fact, been increasing considerably more rapidly than the actual numbers of students.

Will mentions the “diversity” bureaucracies, which often deal with real problems but have the entrenched interest of making the problems seem much worse than they really are. Dare I suggest the impious thought that such bureaucracies expand in staffing and funding as the problems they were created to deal with (racism, homophobia etc.) recede? But of course diversity bureaucracies are rarely that big a deal in terms of funding, and they’re hardly ever the main interest of the top administrators.

To defend some administrative expansion for a moment: Fund raising, admissions, and “retention” have become much more complicated. Colleges seem stuck with treating students much more like consumers, and so with indulging student whims and whines. That’s led, for example, to a kind of amenities arms race—resort-style health facilities, gourmet food, and so forth.

Colleges used to worry about the character and moral fiber of their students, and so they had a lot of in loco parentis social regulations and demerits and so forth. Now they worry that students aren’t happy or too stressed or lonely or short on self-esteem. Colleges are paranoid about retention—that if the consumers aren’t happy they’ll just choose another brand of college. They also spent a significant amount of time and resources being concerned with the health of students, as if the main variable associated with being healthy isn’t being young.

Let’s say there’s something to each of these charges of self-indulgence, although in each case the charge is exaggerated. (And I presented each charge with plenty of irony.)

American colleges could easily be much worse than they are, and many of them should be the envy of the world. There’s nothing in the world that compares to the diversity (beginning but far from ending with religious diversity) of American private colleges. One problem with being too obsessed with all these problems—which are, let’s face it, problems bound to pop up in a high-tech liberal democracy—is that the experts come up with quick fixes, sell them to college administrators, and then all our institutions march lock-step toward solutions that undermine the diversity.

Often the solutions are bound to be worse than the problems. Here’s one reason why: The administrators themselves, full of models of excellence derived from business (encouraged by government when the Republicans are in power), schools of teacher education (which should be abolished or keep to themselves), and political correctness (encouraged by government when the Democrats are in power), demand quantitative, measurable, assessable solutions to tricky and often “goes with the territory” problems. A problem with techno-democracy is that it tends to harness everything to the imperatives of technology or “the measurable.” There’s more than some irony in addressing techno-democratic excesses with techno-democratic methods.

Now let’s return (finally) to completing the comparison of the housing bubble with the higher education bubble. Government—by making loans too easy to get and too cheap—encourages young people who mean well and don’t know better to borrow huge amounts of money to pay the outrageous tuitions and associated college costs.

Just like government used to buy the questionable theory that everyone should own a house, government now believes that everyone should graduate from college. The evidence is that people who graduate from college earn a lot more money than those who don’t. But is this data so clearly cause-and-effect? And isn’t it true that many people now go to college who shouldn’t? And isn’t equally true that many jobs now require college degrees that shouldn’t? Does the real value of a college education—which is education—go down when it’s made too easily available to everyone?

The tragedy Peter Thiel described is graduates so encumbered by debt that they have to accept boring jobs rather than be free to take on entrepreneurial risk. The bigger tragedy is those stuck with debt and no job at all or no job better than one they could have gotten without a degree. A bigger tragedy still involves those who were suckered to take out the big loans but end up not graduating at all. All they got from college is crippling debt.

Private colleges just aren’t worth the rapid escalating sticker prices. Colleges are engaged in mission impossible when they try to provide convincing quantitative data otherwise. So the bubble will pop and the cost will plummet. It’s a scandal that government helped to enable suckers to take on “mortgages” for much more than the degree and “the experience” are worth.

There are all sorts of things wrong with this line of thought. Here’s the first one: It’s remarkable how few students pay the sticker price of private colleges. Studies now show that the net price of a private college education is actually going down. That means that “the discount rate,” of course, is going up.

I gather that at Swarthmore—pretty much the most elite of our elite colleges—the sticker price is $53K+, but the average student actually pays under $20K. The line of Swarthmore is that every accepted student is so good that they all, in effect, have prestigious merit scholarships. So Swarthmore doesn't give merit-based discounts. They’re all need based.

But at all private colleges even a bit below Swarthmore’s “pay grade,” there are both need-based and merit-based discounts. The merit-based discounts are usually given fancy names, like Presidential Scholarships, but they are really just cuts in cost based on stats—GPA, SAT, etc. Colleges value students with superior stats both because they usually contribute to the academic environment of the place and because one accepted measure of a college’s quality is the stats of its students. If the college's rating goes up, then others might pay more for the education is offers. Potential donors will surely be equally impressed.

That surely means that every student at Swarthmore who finds the $20K a struggle involving excessive loans could have gotten a free ride at a somewhat less prestigious—but still really good—college.

So what colleges are typically doing is subsidizing students who are comparatively poor and comparatively smart—and targeted minorities and in many cases athletes—while soaking the comparatively rich and stupid (or unaccomplished). Someone could whine that once again it’s the rich, white male who suffers.

Except: Men have become a scarce and so valuable resource on the campuses of liberal-arts colleges. My college is thrilled when admissions comes in under 70% women, for example. So I can’t prove it but you can be certain that more and more colleges are thinking of male applicants as more valuable—and so deserving of a little more of a break in cost—than women. It’s the rich and unaccomplished female applicant who most likely to be stuck with sticker shock.

I’ve been told more than once that one reason colleges keep raising their sticker prices quite unreasonably is to make the product seem worth more. That’s one way, they think, to convince potential students to pay more for it.

There seems to be two arms races: Both tuitions and discount rates are competitively escalating.

Colleges are constantly thinking of ways to keep the discount rates down while being filled up. Success in this area is between uneven and nonexistent in many cases. One real cash crisis colleges feel is that students aren’t paying anywhere near close enough to the asking price.

It’s now easier than ever—with the Common Application and all that—for students to apply to a large number of colleges and so to receive a large number of discount offers. Students with something to offer can play the colleges off against each other. More students are becoming more savvy consumers, and colleges have to respond.

There’s a lot more I could say, and I will. But for now let me conclude that the size of the bubble has been exaggerated too. The college market is much more a buyer’s market than the housing market was during the boom years. It’s because colleges aren’t really worth their sticker prices that most students aren’t coming close to paying them.

Even the loan problem is greatly exaggerated by Will. But I still would get government out of the loan business. And responsible colleges should cap the amount students could borrow over four years at about 30K. Students short on money should borrow less and work more to fund their educations. It might take a little longer to graduate, but fortunately we live in a time when adolescence has been extended even longer. Private, residential colleges should reconfigure themselves to allow for and encourage students to have jobs that pay real wages (and have nothing to do with college credit)—as opposed to unpaid internships and so forth.

Surely guys like Peter Thiel would be all about funding such initiatives. And my college—Berry College—has had one for decades.